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French Version

IMF issues favorable report on Beirut's economic reforms

Study predicts growth of 2 to 3 percent

The International Monetary Fund (IMF) on Friday said that the government of Prime Minister Fouad Siniora made good progress in economic reforms despite the political troubles in the country. "Given the strong performance through September, fiscal targets for 2007 are achievable with an ample margin. The authorities expect revenue over-performance to continue in the fourth quarter, notwithstanding the shortfall in excises," the IMF said in its preliminary report.

It added that the Lebanese authorities intend to maintain strict expenditure control and to keep spending below program projections.

"In all, the authorities expect significant over-performance on the primary fiscal balance [excluding grants]. This should more than offset the higher interest spending relative to that projected under [the] Emergency Post-Conflict Assistance [program], so that government net debt would also come out below the program ceiling, adjusted for the significant shortfall in budget grants," the IMF said.

It added that the target on international reserves is well within reach. "All things being equal, financial inflows are expected to continue at a sustained pace through the remainder of the year. This should allow the Banque du Liban (BDL) to maintain international reserves at their current level or achieve a modest further build-up," the IMF said.

It stressed that the challenge in the fourth quarter is to reduce government net borrowing from the BDL, as envisaged under the program. "In this regard, the exchange of LL1 trillion in certificates of deposits for Treasury bills effected in October was an important step to reduce the government's reliance on BDL financing."

The IMF said given the political uncertainty, deposit inflows showed resilience - 10 percent deposit growth over 12 months - with dollarization stable at 76 percent. In the absence of foreign exchange market pressures, the BDL was able to strengthen its reserve position somewhat faster than expected to $12 billion at end-September 2007.

The IMF added that the authorities' commitment to the year-end financing target will require deliberate efforts to mobilize additional market financing The IMF commented favorably on the government's efforts to privatize the country's two mobile networks next year.

However, it expressed some concern over political divisions in the country.

"Economic prospects continue to be hostage to political developments. Notwithstanding political tensions and repeated security incidents, the economic recovery from the post-conflict trough has maintained momentum," the IMF said.

It added that developments through July suggest that real GDP could grow by 2 to 3 percent in 2007.

"Export and import growth have been buoyant in the first seven months of 2007, and the trade and the current account deficits are expected to widen relative to 2006," the IMF said.

It added that with rising international commodity prices and the depreciation of the dollar against the euro, inflation has ticked up in the third quarter of 2007, and year-end - December-to-December - inflation is projected to reach 5 percent.

"Inflows of external donor support of the government have continued to fall short of expectations, with few of the resources pledged at the January 2007 Paris III conference having been received by the government to date," the IMF said.

It added that the primary balance and net debt targets for end-September 2007 were met with significant margins.

"The primary balance [excluding grants] posted a small surplus of 0.4 percent of GDP, compared with a projected deficit of 2.8 percent of GDP," the IMF said.

It added that this substantial over-performance resulted from better-than-projected revenue collection and lower-than-budgeted foreign-financed capital expenditure - partly on account of lags in donor disbursements as well as lower-than-expected transfers to the power utility.

"As a result, the growth in net debt was contained to below the target despite somewhat higher-than-projected interest spending. At the same time, it should be noted that the budgetary cost of higher fuel prices will be felt only in 2008 in as much as fuel supplies for Electricite du Liban are financed through letters of credit," it said.

Beirut 19-11-2007
The Daily Star

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